Supply and demand

NDT news is scarce at present and the news in general is filled with the 2016 US Presidential Election. Daily, we are treated to a barrage of Trump-oriented pseudo news. His fellow candidates seem to have lowered themselves to his level and the debates resemble a schoolyard battle. While this had a humorous element to it in its early stages, the process is no longer a joke but a scary reality.

On another political front, the USA has begun to export crude oil after the government changed the law prohibiting its export.

The world market for oil affects the NDT community here in the USA and in the UK North Sea market. Exxon Mobil Corp has become the first major US oil company to ship American crude overseas, joining a band of independent traders that are trying to ease a glut at home after the 40-year export ban was lifted.

Exxon Mobil shipped US crude into a refinery it owns in Sicily; the Maran Sagitta oil tanker sailed in early February from Beaumont, where Exxon Mobil operates a refinery. It recently arrived in the Italian port of Augusta.

Exxon Mobil is the first American firm to join the race, which comes as domestic US crude inventories surge to the highest level in nearly 90 years.

Oil traders are shipping West Texas Intermediate (WTI) to refiners in the Mediterranean to profit from the difference in crude prices between the two regions. A glut of WTI has pushed up US stockpiles to a record level, depressing the price of the US benchmark relative to European Brent crude.

The exports into Europe follow a congressional deal in December 2015 to lift a 1970s-era prohibition on overseas shipments and a movement in relative prices between the US and Europe making exports profitable.

The overseas sales could relieve pressure on storage capacity in the US, after stockpiles rose to nearly 518 million barrels last week – the highest level in official data going back to 1930. Inventories at the biggest US oil storage hub in Cushing, Oklahoma, climbed to a record of over 66 million barrels last week, according to the Energy Information Administration.

Exxon, together with companies such as Chevron Corp and Continental Resources, have lobbied vigorously in recent years against the export ban, which blocked all but a fraction of US oil overseas sales. They faced opposition from US domestic refiners, including Valero Energy Corp, which feared the end of the export ban would lift domestic crude prices, undermining their margins.

The ban was imposed in the aftermath of a 1973-74 OPEC oil embargo, which crippled the US economy and brought home the heavy dependence the country had developed on foreign supply.

While I don’t have a full grasp of the global economics of the oil & gas market, I do recognise that supply and demand control and affect the market from Houston to Aberdeen and worldwide. A recent rise in oil prices seems to be based on hopes that major producers would agree to freeze supply and as positive US economic data fuels optimism about robust demand.

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